The Playtech (LSE:PTEC) share price erupted yesterday, surging by almost 60% in the first 15 minutes of trading! This massive increase has pushed the stock’s 12-month performance to around 85%. But what caused the sudden spike? And should I be considering this business for my portfolio? Let’s take a look.
The Playtech share price surges on acquisition offer
Over the years, Playtech has become an industry leader in the gambling sector. In fact, it’s one of the largest online gaming software suppliers in the world, working alongside other leading firms, including Ladbrokes and William Hill.
Yesterday, management announced an agreement has been made with Aristocrat Leisure for a cash acquisition worth £2.7bn. Aristocrat is an Australian gaming firm that produces software and hardware for casinos. So it’s clear to see why it wanta to buy out Playtech.
The offer translates to a share price of 680p. That’s quite a premium above the closing price of 429.2p last Friday. And given the management team have unanimously agreed to recommend shareholders accept this bid, seeing the stock pop is hardly surprising.
Currently, Playtech shares are actually priced slightly under the acquisition offer at 678.5p. While that’s a tiny margin, investors with a large amount of capital could see this as an opportunity for a small but guaranteed return. Personally, even if I had millions to spare, this wouldn’t tempt me to buy. Why? Because the acquisition is far from guaranteed. Let me explain.
What happens next?
Now that the announcement is out of the way, the next step is to see whether shareholders of both companies are happy with the proposed deal. In the case of Playtech, this will be done at the next General Meeting, which has yet to be scheduled.
A majority vote of 75% in favour is required to receive approval. And assuming this happens, the company will then begin filling all the necessary documents with the courts. After all, every acquisition needs to be approved by regulators to ensure there is no violation of anti-trust laws or that deals don’t compromise national security.
If everything goes according to plan, the acquisition will likely be completed by the second quarter of 2022. But that is a big ‘if’. There are plenty of examples of stocks exploding on an acquisition offer only to collapse again after shareholders or regulators decided to reject the deal. And it’s entirely possible that this may happen to Playtech as well.
The bottom line
Based on the timeline provided by management, it could be another eight months before the deal closes. That’s quite a long time to wait for a measly 1.5p gain. Of course, another company may swoop in with a higher bid. But whether that will happen is entirely down to speculation.
Personally, if I were a Playtech shareholder, I’d use the recent surge in share price as an opportunity to close my position. And then use the capital to invest in other opportunities for my portfolio.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.